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Toy Recalls Could Mean Higher Prices Next Year

Sep 14, 2007 | Parker Waichman LLP, LLP The recent Mattel toy recalls and others like it have raised concerns over the safety of toys imported from China.   As a result, companies like Mattel and Toys ‘R’ Us have announced new inspection systems and other safeguards meant to calm consumer fears over defective toys.   But while these moves could make toys safer, they will come with a price – literally.

In the last decade or so, consumers have gotten used to rock bottom toy prices.   That’s because retailers like Wal-Mart put pressure on companies like Mattel to provide products at the lowest price possible.  Mattel and other companies have looked to China, where labor and manufacturing costs are a fraction of what they would be in the US, in an effort to keep prices low.  Under such pressure, it isn’t surprising that some Chinese manufacturers would cut corners by using substandard materials like lead paint on toys in order to meet US demands for low prices.

But this summer, the old adage “you get what you pay for” seems to have come true.  Several toy makers, most notably, Mattel, have had to recall dangerous toys from China.   On August 1, Mattel’s Fisher-Price division recalled millions of toys for lead paint.   That recall was quickly followed by two more Mattel recalls for more lead painted toys, and for toys with dangerous magnets.  Earlier this summer, the RC2 Corporation recalled Thomas & Friends trains for lead paint, and everything from Spongebob Squarepants notebooks and children’s jewelry have been recalled for dangerous magnets.

Now, Mattel and other companies are going to be scrutinizing the toys they import from China in an effort to avoid more embarrassing recalls.  Mattel, Hasbro, Toys ‘R’ Us and Wal-Mart have all announced new screening systems that include more inspections and testing.  These efforts will increase labor costs, and Chinese companies won’t be able to save money by using lead paint or cutting other corners.   So the price of toys, most analysts say, will be going up.  They expect the price of a Barbie doll, for instance to spike from $6.99 to $7.70, and are forecasting most toy prices to increase about 10-percent.  

But consumers likely won’t see these higher toy prices in time for holiday shopping.  Mattel and other toy makers know that shoppers are already on edge because of toy safety, and they don’t want to alienate them further by increasing prices just yet.  So for now, toy companies and retailers have indicated they will absorb increased costs themselves.  But after the holidays, toy prices can be expected to climb.

Still, $2 added to the price of a Barbie doll seems like a small price to pay to ensure that a toy is safe.  Analysts say most parents will willingly pay the higher prices if it means that they can be sure the toy they are buying won’t harm their child.

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